The Brenmar Sales Company had a gross profit margin (gross profits / sales) of 28% and sales...

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The Brenmar Sales Company had a gross profit margin (grossprofits / sales) of 28% and sales of $8.3 million lastyear. 73% of the firm's sales are on credit, and the remainder arecash sales. Bertram's current assets equal $1.4 million, itscurrent liabilities equal $299,999, and it has $108,000 in cashplus marketable securities.
A. If Brenmar's accounts receivable equal $563,100, what is itsaverage collection period?
B. If Brenmar reduces its average collection period to 20 days,what will be its new level of accounts receivable?
C. Brenmar's inventory turnover ratio is 9.2 times. What is thelevel of Brenmar's inventories?

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4.0 Ratings (585 Votes)

a)Net credit sales =sales * % of credit sales

= 8,300,000* 73%

= 6,059,000

Average collection period =365* Average accounts receivable/Net credit sales

= 365* 563100/6059000

= 33.92 days (rounded to 34 days)

b)Average collection period =365* Average accounts receivable/Net credit sales

20 = 365* AR/6059000

Accounts receivable = 20*6059000/365

= $ 332000

c)Cost of goods sold =sales[ 1-gross profit %]

= 8,300,000[1-.28]

= 8,300,000*.72

= $ 5,976,000

Inventory turnover ratio = Cost of goods sold /inventories

9.2 = 5976000/Inventories

Inventories = 5976000/9.2

= 649,565.22 ( rounded to 649,565)

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The Brenmar Sales Company had a gross profit margin (grossprofits / sales) of 28% and sales of $8.3 million lastyear. 73% of the firm's sales are on credit, and the remainder arecash sales. Bertram's current assets equal $1.4 million, itscurrent liabilities equal $299,999, and it has $108,000 in cashplus marketable securities.A. If Brenmar's accounts receivable equal $563,100, what is itsaverage collection period?B. If Brenmar reduces its average collection period to 20 days,what will be its new level of accounts receivable?C. Brenmar's inventory turnover ratio is 9.2 times. What is thelevel of Brenmar's inventories?